Gold price modestly higher as "reflation trade" heating up

By Jim Wyckoff - Kitco News

Gold and silver prices are a bit higher in early morning U.S. trading Tuesday. The metals continue to be supported by a depreciating U.S. dollar on the foreign exchange market, bullish charts and by keener attention being paid to inflation prospects. June gold futures were last up $2.30 at $1,840.00 and July Comex silver was last up $0.038 at $27.53 an ounce.

Global stock markets were mostly weaker overnight. U.S. stock indexes are pointed toward lower openings when the New York day session begins, led by the technology sector. Some so far just routine profit-taking pressure is seen in the indexes that have been trending higher. Some market analysts are blaming worries about problematic inflation for the pullback in stock markets this week. The U.S. consumer price index is out on Wednesday morning and will be closely scrutinized. Forecasts call for April CPI to be up 0.2% from March and up 3.6%, year-on-year.

While the major economies of the West have not yet been reporting inflation numbers that are concerning, China has just reported its producer prices climbed at the fastest pace in 3.5 years in April, reflecting a big rise in input costs. Producer prices rose 6.8%, year-on-year in April, up from 4.4% in March. China’s consumer price index increased 0.9% year-on-year in April, with demand continuing to improve compared to a 0.4% reading recorded in March. Meantime, China’s central bank raised the yuan currency fix against the U.S. dollar to 6.4254, giving some relief to importers of commodities. Around 100 steel mills in China have raised their prices, reflecting strong demand and rising iron ore prices. The rise in steel prices may threaten a range of downstream industries.

Remember that history shows hard assets like the metals tend to see their prices perform better during times of rising inflationary pressures.

In other news, the closely watched German ZEW economic expectations index for May came in at 84.4 versus 70.7 in April and forecasts for a reading of 71.0.

The key outside markets today see the U.S. dollar index weaker and trading not far above Monday’s 2.5-month low. Meantime, Nymex crude oil prices lower and trading around $64.30 a barrel. The U.S. Colonial pipeline system that has been shut down due to a cyberattack is set to reopen temporarily. The yield on the benchmark 10-year U.S. Treasury note is presently fetching around 1.606%.

U.S. economic data due for release Tuesday includes the weekly Goldman Sachs and Johnson Redbook retail sales reports, and the NFIB small business index. Some Federal Reserve officials are speaking today.

Technically, June gold futures bulls have the firm overall near-term technical advantage amid a six-week-old price uptrend in place on the daily bar chart.

Bulls’ next upside price objective is to produce a close above solid resistance at $1,881.00.

Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,775.00.

First resistance is seen at this week’s high of $1,846.30 and then at $1,850.00. First support is seen at this week’s low of $1,830.50 and then at $1,817.60. Wyckoff's Market Rating: 6.5

The silver bulls have the firm overall near-term technical advantage amid a six-week-old price uptrend in place on the daily bar chart.

Silver bulls' next upside price objective is closing July futures prices above solid technical resistance at $29.00 an ounce.

The next downside price objective for the bears is closing prices below solid support at $26.00.

First resistance is seen at this week’s high of $28.005 and then at $28.475. Next support is seen at the overnight low of $27.205 and then at $27.00. Wyckoff's Market Rating: 6.5.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The original article was written by Jim Wyckoff and published on Kitco News